One, Two, Three Uses for A123's New Batteries

A123 Systems? (NASD:AONE) announcement of a new battery technology able to operate at both extremely high and low temperatures has the headline writers dreaming of cheaper electric cars.

Electric cars may be dreamy, but they are just one application of the technology. There are at least two more, with significant near term potential.

1. Is it really about electric vehicles (EVs)?

Sure, it would be nice to be able to trim $600 of the price tag of a Tesla (NASD:TSLA) Model S or a Nissan Leaf (NASD:NSANY), but how much difference would that make on a $58,000 or $36,000 car? It’s nothing compared to the federal $7,500 tax credit, and (surprise!) as EVs get cheaper, governments will become a lot less generous supporting them. Or such subsidies will be cut before the cars get cheaper, a real possibility in these budget-cutting times. We’ve seen it happen time and time again with solar and wind subsidies. Why should EVs be different?

In short, A123′s new technology (which applies tweaks to the electrodes and electrolyte of lithium-iron phosphate batteries), may give it an advantage over other battery makers in the electric car market, but investors should be much more excited about the other markets it opens up.

Two of those markets are replacements for lead-acid starter batteries, and remote back-up power.

2. Start-Stop

The engine compartment of a typical car is much too hot for conventional lithium ion batteries, which is part of the reason (the other is price) we’re still using lead acid batteries to start our cars. But the drive for better fuel efficiency is driving automakers to look at inexpensive stop-start technology, which turns off a car’s engine when it would otherwise be idling at a stoplight or at a drive-through window. Conventional lead acid batteries are simply not durable enough for the quick, repeated charging cycles stop-start requires. Automakers are looking at a number of more advanced options, including lithium-ion batteries, battery-ultracapacitor hybrids from Maxwell Technologies (NASD:MXWL) and collaborators, and lead carbon batteries from Axion Power (OTC:AXPW).

Lithium-ion batteries are the most expensive of these options, but they also have the advantage of lighter weight and a quicker charging rate. Ultracapacitor-battery hybrids are only now seeing their first commercial applications, and while lead carbon batteries have shown great performance in testing, they are not yet being used commercially. A lithium ion battery able to withstand the heat of the engine compartment might appeal to auto manufacturers looking to add stop-start technology to existing models with minimal redesign using a more familiar technology.

Early stop-start vehicles using advanced lead acid batteries work well in the beginning, but get worse mileage as the batteries degrade in a matter of months. A drop-in replacement based on high temperature lithium ion batteries would be a quick fix for any of these vehicles already on the road.

3. Back Up Power

Most exciting to me is the possibility of using these new batteries as backup power in cell towers or areas without reliable power supply from the grid. The problem with using lead acid batteries in these applications is that lead acid batteries charge slowly, meaning that diesel generators must run for a long time to charge them. In places like India with unreliable grid power, lithium ion batteries might allow the diesel generator to be dispensed with altogether, while in remote power situations, it could be run for shorter periods of time.

Removing the diesel generator from a back-up power system would likely require far fewer lithium ion batteries than removing the gas engine from a car, and so the equivalent barrels of oil saved would be much higher for every kWh of lithium ion batteries. The economics would likely be much more compelling than the economics of electric vehicles as well.

Conclusion

It’s worth getting charged up about the potential of these new batteries from A123. If the technology works as well as the company says it does, they will enable significant savings of both money and fuel. But most of those savings won’t be found on the affordable electric vehicle superhighway.

The chances of real fuel savings aren’t as remote as the chances of a cheap electric car. Stop that thought, and start thinking about anti-idling technology and cell phone towers. The back up power opportunity may be in remote markets, but its chances aren’t remote at all.

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results. This article contains the current opinions of the author and such opinions are subject to change without notice. This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

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Tom Konrad is a private money manager and freelance writer focused on Peak Oil and Climate Change as investment themes. He manages portfolios for individual clients and is Head of Research for the JPS Green Economy Fund (http://jpsgreeneconomyfund.com),...